Astrazeneca Case Study Analysis
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Transcript of Astrazeneca Case Study Analysis
AstraZenecaBusiness Case Analysis
Sergio Garcia, Himanshi Nandu, Adriana Padhina, Janelle Thompson
Busi 599 Graduate Business EssentialsMichael Cole, Edward O’ConnorDecember 6, 2012
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Table of Contents
AstraZeneca Business Case............................................................1Executive Summary.............................................................................1
Background...................................................................................1History...............................................................................................1Environmental Factors.........................................................................2Business Model...................................................................................2Quantification of Market Size and Share...............................................5Operational Effectiveness....................................................................6Management Effectiveness..................................................................7Competitive Comparison (Direct and Indirect).......................................7
Marketing & Sales Strategy...........................................................7Key Market Segments – Target Market(s).............................................8Positioning..........................................................................................8Brand Strategy....................................................................................8Marketing Mix Strategies.....................................................................9Innovation Profile and Strategy..........................................................10Sales & Service Strategy....................................................................10
Financial Analysis........................................................................11Profitability, Liquidity, & Leverage Ratios...........................................12
EBITDA, Income Statement, ROE.......................................................................12Current Assets/Current Liabilities......................................................................12Sources of Capital..............................................................................................12
Trends and Industry Comparisons......................................................13Analysis of Financial Statements in Terms of Supporting the Case.......13
SWOT Analysis............................................................................13Summary..........................................................................................13Strengths..........................................................................................14
Sales growth of Crestor, Seroquel XR and Symbicort........................................14Advancements in Biologics and Vaccines..........................................................15Cost control efforts increasing operational efficiency........................................16Maintains strong global presence......................................................................17
Weaknesses......................................................................................17Expiring patents................................................................................................17Regulatory requirements...................................................................................18R & D productivity.............................................................................................18Pricing Pressure.................................................................................................18
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Opportunities....................................................................................19Advances in science and technology.................................................................19Further expansion in emerging markets............................................................20Amgen collaboration for inflammation drugs.....................................................20Acquisition of Ardea, which is a U.S. biotechnology company...........................21
Threats.............................................................................................21Generic Competition..........................................................................................21Illegal trade in products.....................................................................................22Patent litigation in respect of IP rights...............................................................22Economic, regulatory and political pressure......................................................22
SWOT Conclusion...............................................................................23
Competitive Picture.....................................................................23Observation Explanation....................................................................23Recommendations.............................................................................23Financial Model.................................................................................23
Market Share Growth.........................................................................................23Revenue Growth................................................................................................23Expense Projections...........................................................................................23
Counter Argument.............................................................................23
Conclusion..................................................................................24
Appendix………………………………………………………………………………………..25
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AstraZenecaExecutive Summary
Our case is based on the pharmaceutical company Astra
Zeneca. AstraZeneca is active worldwide and
employs over 65,000 people in over 100
countries and is the second largest
pharmaceutical company in the United
Kingdom. AstraZeneca’s medicines cover several
fields including cardiovascular, gastrointestinal, infection, neuroscience,
oncology and respiratory. In this case study, we will demonstrate that in
reality Astra Zeneca is a stable company and heading towards the right path
but it is market value undervalued in aspects of Marketing/ Finance in
comparison to its competitors. We shall investigate the true insight of why
this company has been undervalued in these areas. We will demonstrate
their strengths and weaknesses and their insight of their plan for the
future. AZN has faced obstacles such as product development life
cycle. Drug development is a highly competitive activity and every day
saved in getting a new branded drug to market can be measured in millions
of dollars. Patents for pharmaceuticals last between 20 and 25 years,
depending on the country or region, but it takes between eight and 12 years
to bring a new drug to market. The shorter the product development time
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and clinical trial, the longer a company has to establish brand leadership and
generate revenue before a competitor can bring generic products to market.
We will dissect the financial statements within this domain and views how
their current leaders, such as managers help keep their sales up to
par. Management will be looked at in a more in depth view such as how
they help bring the company to their vision and standards. AZN has been
establishing programs as well in foreign countries that has helped market
their products within those regions. This concludes us, AZN has all the
essential tools to rise in being within the top 5 pharmaceutical companies
globally if they mend their weaknesses and we have incorporated
suggestions of how this can be done.
BackgroundHistory
This major Pharmaceutical Company was originally two separate
entities, which were Astra AB and Zeneca. Astra AB was founded in 1913 by
a group of doctors in Sweden. The second company was Zeneca, which was
founded on 1993 in Britain. In 1999, both companies merged and became
the company that we now know as AstraZeneca plc. The merger between
both companies was to provide long-term growth and bigger shareholder
value through Global power and reach in sales / marketing, stronger R &D
platform, and a greater financial strategy.
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Environmental Factors
Pharmaceutical markets continue to grow as the population increases.
As humans continue to want to prolong their lives, the pharmaceutical
industry continues to thrive. The pharmaceutical industry continues to have
a wide demographic for their markets, where different diseases and chronic
illnesses continue to trouble people and provides a market for those who
wish to medicate them. Although this demographic seems unflawed,
increased pricing pressures, pressure for industry returns on declining R&D
productivity, coupled with rising healthcare costs, pose major threats to the
industry. Regulatory constraints have increased from political pressure to
and will continue to soar. The culture of the industry is one of a competitive
nature and forcing companies to diversify by acquiring generic businesses or
consumer portfolios. R&D productivity improvement remains a top priority
among the industry as well as global expansion, industry consolidation via
mergers and acquisitions, and the pursuit of operational efficiency.
Business Model
Business Model- Strategy and Performance
AstraZeneca’s business model is driven by their strategy and is based
on using the best innovative science & technology to invent or acquire,
produce and distribute innovative, patent-protected medicines that make a
meaningful difference to people’s health around the world. They also
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commercialize medicines that do not have patent protection where we can
obtain prices that reflect the quality and value of our brand. To pursue their
strategy, they invest in those projects and products where they believe
medical innovation or brand equity will enable us to make acceptable levels
of return for their shareholders.
The Life cycle of a medicine, the process they use to develop new
drugs. It starts with the identification of an unmet medical need and market
opportunity and the search for a potential medicine, and moves through
clinical trials and drug development, regulatory submission, a medicine’s
launch and management of its life-cycle.
An inherent element of their business model is the creation and
protection of our underlying IP (Intellectual Property) assets. As the diagram
below shows, the development of a new medicine requires a significant
investment of resources over a period of 10 or more years before product
launch, with no guarantee of success. For this to be a viable investment, the
resulting new medicine must be safeguarded from being copied with a
reasonable amount of certainty for a reasonable period of time. This allows
time to generate the revenue they need to reinvest in new pharmaceutical
innovation. In addition to establishing and defending their IP assets and, as
illustrated in the diagram, they can also influence the return they make on
their investment by improving their:
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R&D productivity: “We are focused on delivering innovative and valued
medicines”
Their R&D organization continues to evolve to meet the challenges
facing our industry by investing in high quality science and harnessing the
innovation of their people. They are continuously improving their
understanding of mechanisms and targets that will become the Foundation
for developing and delivering tomorrow’s new medicines. These efforts are
undertaken with the highest ethical standards, as they are committed to
delivering innovative medicines responsibly. They continue to prioritize their
resources and focus discovery activities on those diseases within our existing
therapy areas where they believe there is the greatest potential to meet
patient need through the application of novel science. This continual process
of prioritization is designed to ensure that the projects they have in their
pipeline constitute the programs, which they believe are most likely to
deliver technical and commercial success.
Sales and marketing effectiveness:
Their global sales and marketing organization is active in over 100 countries
and, at the end of 2011 comprised approximately 32,300 employees. As well
as building on their leading positions in the US and Other Established
Markets, they continue to increase their strength in Emerging Markets
including China, Brazil, Mexico and Russia.
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Fig. 1 Business Model – AstraZeneca Annual Report 2011
Operational efficiency
A key goal for their planning process is to ensure that they sustain the cycle
of successful innovation and, as a result, continue to refresh their portfolio of
patented products and so generate value for shareholders.
They seek to maximize the efficiency of our supply chain through a culture of
continuous improvement built on the commitment and engagement of their
employees and a commitment to minimize the impact on the environment.
They focus on what adds value to their customers and patients, as well as
waste elimination. This program has delivered significant benefits in recent
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years, including reduced manufacturing lead times and lower average stock
levels, both of which improve their ability to respond to customer needs and
reduce inventory cost. All improvements are designed to ensure they
maintain product quality, safety and customer service.
Quantification of Market Size and Share
The pharmaceutical industry remains highly competitive. Most of
AstraZeneca competitors are other large research-based pharmaceutical
companies such as Pfizer Inc., Johnson & Johnson, Amgen Inc., and
Genentech, Inc. All of these pharmaceutical companies develop and sell
innovative, patent-protected prescription medicines and vaccines, as well as
smaller biotechnology and vaccine companies, and companies that produce
generic medicines. While all the companies are confronting similar
challenges, strategically these challenges are being met in different ways.
The definition of fragmented market is when a company uses different
suppliers and component manufacturers in the production of a good.
Fragmentation is the results that lead to different companies producing
component parts and then the complete finished good assembled elsewhere.
AstraZeneca would not be able to secure their success if they did not have a
good relationship with those whom they do business with. Global External
Interactions Policy was launched in April 2011, which provides a single,
common, principle based approach to all our interactions worldwide with
public officials, healthcare professionals and community organizations.
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Global orientation
AstraZeneca future success required them to develop global strategies to
commercialize our products effectively. These global strategies needed to be
tailored in both mature and emerging markets. As part of that drive, we
announced our decision to invest $200 million in a manufacturing facility in
China and our agreement to acquire a Chinese company that will give us
access to a portfolio of medicines used to treat infections. In Russia, we
invested $150 million in a manufacturing plant and announced plans to
establish a new predictive science center. We are also committed to playing
our part in the global challenge of providing sustainable access to healthcare
for all those who need it. Our strategy recognizes the complexities
surrounding the issue, which range from the affordability of medicines to the
availability of healthcare systems and the resources to make them effective.
Operational Effectiveness
Former CEO David Brennan’s review in the 2011 annual report outlined
the goals and methods for streamlining the company’s operational efficiency
noting several steps such as a new production plant in China, which “uses
Lean production principles from the outset”, reductions in workforce across
the organization, and R&D site consolidation. In the annual report it goes on
to discuss that the “Lean production business improvement tools” have been
implemented to the entire supply chain and throughout the organization
including employees, products and equipment, and has resulted in quality
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improvement, “lead times and overall equipment effectiveness”. Lean is
used by organizations to reduce waste while increasing customer value as
stated on the Lean.org website. The plant in China has expanded the
accessibility to AstraZeneca’s products for urban and rural communities to
accommodate the rising local demand as explained in the 2011 annual
report. Global supply chain experts are being utilized to provide cross-
functional support through the organization and there was an October launch
of the Supply Chain Academy, which provides online internal training to
solidify and escalate the improvements throughout the supply chain. There
is also a leadership program to contribute to the goal of an efficient supply
chain. The identification of failed processes are being sought out to create
methods to counteract these vulnerabilities. 1400 positions within the R&D
department have been reduced and there are also other reductions in supply
& manufacturing, support functions, and the sales and marketing workforce
as well as the closure of several facilities this year and more in the coming
year. AstraZeneca has also sold Astra Tech, which specializes in “dental and
healthcare (urological and surgical) products”, for 1.8 billion in cash allowing
them to retain focus on their core therapy areas of cancer, cardiovascular,
gastrointestinal, infection, neuroscience and respiratory and inflammation.
Management Effectiveness
AstraZeneca wants their employees to feel positive and enthusiastic
about what they are doing for the company. They set a clear sense of
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purpose, which creates confidence in their employees to meet the challenges
of the pharmaceutical industry. Management provides their employees with
effective leadership, clear target, good communication, as well as excellent
learning and development opportunities. Within a performance culture they
create healthy, safe and energizing workplaces. AstraZeneca values diversity
and the success of employees that depend on personal merit and
performance.
Setting the performance targets
Key priorities of AstraZeneca’s employees are to continued
development of their performance culture across the organization.
Strengthening their focus on setting high quality objectives aligned with the
company’s business strategy. Performance at all levels of the organization
delivers value to the company. The AstraZeneca Board is responsible for
setting high-level strategic objectives and monitoring employee’s
performance against these. AstraZeneca mangers have a responsibility of
working with their employees to develop individual and team performance
targets; they ensure that employee’s understand how they contribute to
overall business objectives.
Developing global talent and capabilities
AstraZeneca provides a range of learning and development (L&D), they
want to encourage and support their employees in achieving their full
potential. These programs are designed to build the capabilities and
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encourage the behaviors needed to deliver our business strategy. The
company has also implemented a global approach, supported by the creation
of our global talent and development organization, to ensure that high
standards of L&D practice are applied across the organization.
Diversity and inclusion
Although promoting diversity is not a new commitment for
AstraZeneca, nut to make sure that there is diversity it is represented in
leadership, workforce and companies thinking. Diverse cultures,
backgrounds, skills and experience of our global workforce bring great
creative strength and energy to the company and have a critical role to play
in achieving strategic objectives. The goal of a 25% increase in sales the
year of 2014 coming from emerging markets, including China, Brazil, Russia
and India. While working alongside the companies already established
markets AstraZeneca continues to grow the business in these emerging
countries to increase diverse range of stakeholders worldwide.
AstraZeneca perspectives of their stakeholders are central to how they
do business and understanding the different medicine needs that society
values. It is important that diversity of the communities that AstraZeneca
serves is reflected in their workforce and their leadership teams, locally and
globally. AstraZeneca’s inclusive culture has employee’s diverse talents as a
critical aspect to attracting and retaining the best employees to take the
business forward.
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Shaping our priorities
AstraZeneca is a company that operates in over 100 different countries
so to define their global framework around the world can be challenge.
Established in 2010 and chaired by our CEO AstraZeneca has a global
steering group of senior leaders. This group has supported a more actively
inclusive culture, with the focus on driving change in key areas identified;
leadership and management capability, transparency in talent management
and career progression, and the challenges of work-life balance. Leadership
and management capability led by a VP from the global marketing and sales
organization and is focused on building awareness of the business value of
diversity, and the impact of leadership behavior on creating an inclusive
culture. The group works to integrate diversity and inclusion at levels within
leadership and management culture. Leadership and management
development programmers support and empower people in understanding
and leading the way in driving our diversity ambitions. Transparency in
talent management and career progression led by our Head of Clinical
Development focuses on retaining and attracting the best talent. This group
creates environments where ability is recognized, rewarded and encouraged
to grow and where processes are transparent and behaviors irreproachable.
This program works with diversity at lower levels; it identifies talented
individuals earlier in their careers. This help the employees better their
development, build more diverse talent pipeline and enhance capabilities in
strategic geographies. This gets tracked by senior leaders to provide the
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company with diverse talent pools. In 2012 AstraZeneca created a mentoring
program which brought together junior employees and senior leader. This
opens an accelerated developing plan for junior talent, showing positive
leadership behaviors and encouraging an inclusive open culture. The third
work group is led by our President, AstraZeneca US and CEO North America
focuses on helping to create a climate, culture and working environment
where employees feel supported in managing the demands of work and
personal life. In 2010 global employee survey showed that work and life
balance as an area that needed improvement. This survey gave the senior
leaders a good insight into the issues expressed by an employee
perspective. With this in mine in 2011 AstraZeneca developed a new set of
global work/life balance principles. This was expressed to all employees by
the CEO to reinforce this throughout the company. These principles allowed
business leaders now to use global principles to develop solutions locally, in
line with local laws, practice, custom and culture.
Global Principles to support work-life balance
AstraZeneca does not expect employees to work excessive hours on a
regular basis.
We encourage ongoing dialogue and review of work expectations,
including scope and timelines with an emphasis on prioritizing and letting
go of lower value work.
We believe good health and wellbeing are fundamental to the ongoing
success of AstraZeneca and therefore encourage managers and
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employees to work together to create flexible solutions, to meet business
goals while not interfering with time for family and friends, community
activities, exercise or sleep.
We encourage the use of technology to create solutions that are viable
alternatives to face-to-face meetings that require travel.
Engagement and dialogue
In achieving AstraZeneca’s goals they believe in open lines of
communication. This is critical in helping employee’s to engage with senior
leaders so they understand their roles and work well with the company’s
business strategy. AstraZeneca has a variety of communications styles:
local leaders and managers hold regular meeting with their teams, as well as
Internet, videoconference and yammer (social media tool). In addition,
AstraZeneca’s code of conduct outlines the procedures for employees to
raise integrity concerns, including a confidential helpline.
Global employee survey
AstraZeneca also focuses on their annual global employee survey
called (FOCUS). This survey allows the company to track employee opinions
and measure levels of engagement, the effectiveness of our communications
and other areas critical to our business performance. Alongside of an
external specialist these surveys are conducted anonymously. The results
are analyzed and communicated back to the employees. The uses of these
surveys are to provide valuable insights for business leaders and managers
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about what we are doing well and where improvements need to be made.
These insights inform our strategic planning across the business AstraZeneca
stated that:
91% of our people participated in our 2011 survey – the highest
participation to date, reflecting continued confidence in this feedback
mechanism.
After the 1% point reduction in 2010, we were pleased to see a 1%
increase in the employee engagement score in 2011. Scores also
increased in two other areas targeted for improvement following the 2010
survey: leadership and work-life balance, both up by 2%.
While some of these results are encouraging, the survey for 2011
showed that there is a further improvement in engagement and leadership
categories. The surveys also stated that the company needs to maintain the
momentum it has built across the business in the area of work-life balance
and communication. With this issue being highlighted in the survey
AstraZeneca during the year 2011 made their senior executive team (SET) a
total of over 120 people to make personal appearances at company sites
across the four continents in an effort to create better communication.
Feedback after the meetings showed that people welcomed the opportunity
to interact with SET members and understand better the role everyone can
play in driving future success.
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Safety, health and wellbeing
AstraZeneca believes that a safety, healthy and energizing working
energizing working environment benefits employees as much as it benefits
the business. If the employees are happy and enjoy their work as well as
their work environment it contributes to AstraZeneca’s success.
AstraZeneca’s stated that they are committed to continuously promote
health and wellbeing for all of their employees. Listed below are some of the
company’s core considerations to continue this within the company:
Ensure that safety, health and wellbeing considerations are integrated
across all our activities.
Identify risks and ensure that these are understood and managed
responsibly.
Help employees to understand their personal health risks and empower
them to manage these.
Set clear targets focused on continuous improvement.
AstraZeneca global Safety, Health and Environment (SHE) Policy
describes what expectations are wanted for thr employees and it also has
global standards and procedures which detail the minimum requirements in
key risk areas.
In January 2011, AstraZeneca started a new SHE strategy and a
complementary Health and Wellbeing strategy for the targets in the
upcoming years 2011-2015. These SHE strategies worked with the business
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objectives and were made to make sure there is a steady improvement in
supporting safe, efficient and sustainable operations across the company as
AstraZeneca re-shape and grow our business.
Our safety, health and wellbeing targets for 2011-2015 are:
Fatalities: zero tolerance
Accidents and illnesses: 25% reduction in combined accident and illness
rate
Driver safety: 40% reduction in collision rate
Health & wellbeing: 80% of sites offer our 6 essential health programmers
or services
Managing change
AstraZeneca continues to evolve in the global workforce. Their
strategic focus is on business growth in the emerging markets, as they have
already noticed that the work force in these areas have grown substantially.
Although this increase in the company it has also been accompanied by a
reduction of employees to improve efficiency and effectiveness. These
reductions have come about through restructuring in R&D, supply and
manufacturing, support functions and our sales and marketing workforce in
established markets. Since 2006 AstraZeneca has reduce the number of
employees by some 9,600 from 66,800 to 57,200. This decrease includes a
reduction of 2,600 positions in 2010 and a further 5,000 in 2011, which
resulted from AstraZeneca business change plans, announced in 2010.
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During 2011, the most significant business change was the implementation
of the R&D strategy announced in 2010, which also involved a number of site
changes. Approximately 1,400 roles, almost all R&D employees worldwide
were impacted in some way by this change in order to control further job
losses, over 750 employees were redeployed in the correct areas. In
addition, there were reductions in the number of roles in several areas of our
sales and marketing organization in 2011, which were incremental to the
ongoing restructuring programmer announced in 2010. In the US alone there
was a reduction was reduced by approximately 1,150 leadership positions
and sales representative roles. AstraZeneca is committed to ensuring that
core values, robust people policies, consultation infrastructure and prior
experience are integrated into our multi-faceted business transformation.
AstraZeneca includes trade unions and employee representative groups are
involved throughout the restructuring process. AstraZeneca investment
significantly in outplacement support and with this high levels of success
were achieved in finding employees opportunities outside the US in 2011.
AstraZeneca makes sure that there is a level of global consistency in
managing employee relations but at the same time allowing enough
flexibility to support the local markets. Building good relations with their
workforces, taking into account local laws and circumstances are many of
AstraZeneca core values.
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Competitive Comparison (Direct and Indirect)
Pfizer continues to have a strong sales and marketing infrastructure,
which has allowed them to revive their credentials with the recent success of
Lyrica, Sutent and Chantix. Although they have seen brighter days they still
suffer from low growth potential therapy area markets and limited
penetration into the biologics market. Johnson & Johnson continues to
dominate branding and have numerous successful subsidiaries that allow
them to maintain expertise in various therapy areas where their product
diversification has positive revenue growth projections. Generic
competition continues to affect the sales of small molecule products, where
generics is rampant, and will continue to affect it with the creation of new
products.
Marketing & Sales Strategy
Key Market Segments – Target Market(s)
Astra Zeneca Plc. has few target markets due to the business that they
are in. These Target Markets are Health Care professionals and those who
pay for healthcare. They utilize face-to-face is their traditional marketing
method. They have adopted new methods to market their product and they
have utilized this method in the North America and Europe markets.
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Positioning
Astra Zeneca is responsible for development of healthcare medicine in
six different areas such as Oncology, Respiratory, Gastroenterology, and
etc. An example would be Nexium, which is Astra Zeneca’s largest product
launched; they are targeting clients and healthcare specialists within each
specialty.
Brand Strategy
There specific strategy is biopharmaceutical, integrated, innovation-
driven and focused. In the biopharmaceutical aspect of the strategy that
they will develop biological and chemical medicines, meaning both large and
small molecular medicines. It is also focused driven, meaning that they will
be very selective in the areas within the pharmaceutical areas in which they
will compete. They will target product categories in which they can promote
innovation and their brand equality shall be able to bring acceptable levels in
return from their investments. They strongly believe in order to obtain the
full potential from the market; they will work on their chain of discovery
(research) and development while establishing partnerships and outsourcing
to establish efficiency. Their Technology base will provide innovations for
new products to be delivered to the market that ultimately will benefit
patients. Astra Zeneca strongly feels that they are able to meet the needs of
the established global markets and the emerging markets efficiently and
effectively.
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Marketing Mix Strategies
They segment their products according to needs and resources in the
target markets. An example would be the medication Crestor, which is
currently being marketed in the U.S. The reason being why Crestor is being
marketed more in the U.S. than in other areas is due to the obesity rate and
levels of cholesterol in the U.S. is in all time high. Also they market Oncology
medications and by doing so they alter the packaging of the product so the
patient remembers to adhere to take the medication. They also package the
medication a bit more discrete so the client (patient) will not feel a negative
connotation towards their condition. Astra Zeneca reaches out and
establishes programs to help individuals with low resources in order to obtain
the appropriate treatment at a reasonable price. They have entered the
generic realm of pharmaceuticals meaning that price will have to be in a
more reasonable price for consumers.
Innovation Profile and Strategy
In the aspect of innovation, they (Astra Zeneca) are dedicated to the
discovery, development, manufacturing and commercialization of
medicine. Through many partnerships and various agreements with large
institutions they are providing large innovations for the pharmaceutical
industry. An example is the collaboration between University of Manchester,
GSK and AstraZeneca, which will allow each partner over a three-year period
and will bring together scientists from both the pharmaceutical industry and
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academia. In the US, Astra Zeneca utilizes social media to recruit patients
for clinical trials in order to establish if the drug therapy is safe and effective
to its initial purpose. They have also helped partner up with governments
such as Germany to establish programs that will help screen certain diseases
such as cardiac diseases; the public and private sectors of health care funds
funded this. In Brazil they helped establish a program called “Well Being”,
which allows for individuals to obtain discounts and incentives for those
individuals who adhere to the treatment regimens. The physician registers
these patients and conducts thorough examinations and sends the
information to Astra Zeneca and then the company shall send the patient a
discount coupon for the specific medication pertaining to their diagnosis. By
doing so, this helps establish their mission, which is to benefit for society in
obtaining medical treatment at a more obtainable rate for those in need.
“A recent survey showed that up to 50% of patients don’t take their
medicines as they should - even cancer therapies. This fact triggered our
Global Packaging team to take a close look at how the packs that our
medicines come in could help to encourage patients to take the medicines as
prescribed. Improving adherence by just a few percent could significantly
improve treatment outcomes for the patient (and the associated sales would
also be good for our business). We are pursuing the opportunity to use pack
design to influence adherence through a range of ‘customized’ initiatives. In
Canada, for example, a version of our breast cancer therapy, Arimidex, has
been launched in packaging that resembles a cosmetics case to make the
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pack more discrete and less intimidating for patients to use. In Spain, the
packaging for our pediatric asthma inhalers now features an image of a kite –
associated with fresh air and physical activity – to help children feel more
positive about taking their medicine. These are the first in a range of
packaging innovations that we are planning to help patients along their
medication path and we will be publishing more about these on this website
shortly.”
Sales & Service Strategy
Concentration on commercial success contributes to prosperous sales
for any organization. AstraZeneca includes customer insights into their R&D
strategy early on in the life cycle of their medicines and they maintain a
centralized commercial organization that cultivates global product strategies,
which are implemented by local leaders in individual markets to ensure
concentration on customers’ needs and preferences. To keep up with the
changing markets and needs of payers, customers and healthcare
professionals AstraZeneca has consolidated its efforts into 3 regions, which
are the Americas, EMEA and Asia-Pacific where the regional sales and
marketing organization is run from 3 main sites that are in Wilmington,
Delaware U.S., London, UK, and Shanghai China, that are able to deliver
market specific content while allocating resources in a cost effective manner
allowing the identification of markets of major significance. AstraZeneca’s
values are always included in all sales and marketing activity for responsible
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commercial success and brand sustainability. In 2011 focus remained on the
key products Crestor, Seroquel XR and Symbicort whom all earned double
digit sales growth, and emerging markets including China, Brazil, Mexico and
Russia which earned $5.8 billion, which is 17% of the total revenue. New
product launches in 37 markets garnered $274 million in revenue. The
creation of new sales models that include wholly owned local marketing in
most countries and distributor or local representative offices in others with
the focus on primary care and specialist doctors using the traditional face-to-
face marketing method. Sales and marketing training programs are
available to increase the effectiveness of the sales force by “embedding core
commercial skills and strengthening sales managers’ coaching and planning
skills while also reflecting local market needs and conditions”, as outlined in
the annual report.
Financial Analysis
Profitability, Liquidity, & Leverage Ratios
Profitability
Ratios that show profit margins represent the firm's ability to translate sales dollars into profits at
various stages of measurement.
AstraZeneca PfizerJohnson &
Johnson
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Net Income 9,470 $10,009 9,672Sales 33,591 $67,425 65,030Profit MarginNet Income/Sales 0.28 0.15 0.15Total assets 52,830 $188,002 $113,644Return on assets (ROA)(Net Income/Total assets) 17.93% 5.32% 8.51%Total equity 23,472 82,621 57,080Return on equity (ROE)(Net Income/Total equity) 40.35% 12.11% 16.94%
Table 1: Profitability
Profit margin ratio ( Net Income / Sales ) is 0.28 of AstraZeneca is more than Pfizer and
Johnson & Johnson means they it has better control over its costs compared to its
competitors.
ROA (Net Income / Total Assets) of AstraZeneca is 17.93 which is higher than Pfizer
and JNJ. This is good because it means the company is earning more money on less
investment when compared to others.
ROE (Net Income / Total Equity) of AZN is 40.35 which is higher than Pfizer and JNJ.
This is good because it indicates how well management is employing the investors'
capital invested in the company.
Thus overall all the profitable ratios for AZN are better than JNJ and Pfizer.
Liquidity
Liquidity has to do with a firm's assets and liabilities. In particular, liquidity looks at whether or
not a firm can pay its current debt with its current assets.
AstraZeneca Pfizer Johnson & JohnsonCurrent Assets/ 23506 57728 54,316Current liabilities 15752 28,069 22,811Current ratio 1.49 2.06 2.38
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Table 2: Liquidity Ratio-short term
Current assets over current liability of AstraZeneca show that they have liquidity to pay its
current debt with its current assets. So they have sufficient liquidity to pay any immediate short
term liability (because the ratios > 1). Their competitors have more liquidity than AZN but
having a very high liquidity doesn’t necessary mean that they are efficiently utilizing cash and
capital. AZN is maintaining a good balance between the short term liquidity and efficiently
utilizing their capital which is seen in their Profitability.
Leverage Ratios
AstraZeneca PfizerJohnson &
JohnsonTotal assets 52,830 188,002 $113,644Total equity 23,472 82,621 57,080Total Liabilities 29,358 105,381 56,564Total debt ratio(Total assets-Total equity)/Total assets 0.56 0.56 0.50Total debt is total liabilities 29,358 105,381 56,564Debt-equity Ratio(Total debt/Total equity) 1.25 1.28 0.99EBIT (operating profit) 12,795 12,762 12,361Depreciation 2,550 9,026 3,158EBITDA 15,345 21,788 15,519
Table 3: Leverage Ratio-long term
Debt Ratio: A debt ratio of greater than 1 indicates that a company has more debt than
assets; meanwhile, a debt ratio of less than 1 indicates that a company has more assets
than debt. Used in conjunction with other measures of financial health, the debt ratio can
help investors determine a company's level of risk.
AZN debt ratio is less than 1 this indicates they are able to pay debt over assets. And risk
level of the AZN is low. AZN is able to balance with their competitors.
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Debt – Equity Ratio: AstraZeneca does have a higher Debt-Equity ratio when compared
to its competitor. This could be a point of concern. But looking at it efficient utilization of
capital and ROE it shouldn’t be too much of a concern. It is something to keep an eye on.
Asset Turnover
AstraZeneca Pfizer Johnson & Johnson
SALES 33591 67425 65030TOTAL ASSETS 52830 188002 113644Total Assets TurnoverSales/total assets 0.64 0.36 0.57
Table 4: Assets turnover
Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the
higher the number the better. AZN has better Asset Turnover (0.64) than Pfizer and JNJ. This
means that AZN efficiency at using its assets in generating sales or revenue is better than
competitors.
P/E Ratio:
AstraZeneca PfizerJohnson &
JohnsonNet income after taxes 9,470 10,009 9,672No of common stock share outstanding 1,367 7,870 2,775.30
Basic Earnings per shareNet income after taxes/No of common stock share outstanding 6.93 1.27 3.49
Price per share (Dec 30 2011) 43.56 20.83 63.24Price-Earnings (P/E) RatioPrice per share/ Basic Earnings per share 6.29 16.38 18.15
Table 5: P/E ratio
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AZN has low P/E ratio than other competitors. That means investors value JNJ and Pfizer more
than AZN. Hence we feel that AZN is undervalued. Reasons why we value more is because it’s
operational efficiency, its new drug in the pipelines & Acquisition of Medimmune their new
vaccinations. Also one of the reasons that AZN is undervalued can be seen by looking at P/B
ratios.
Market-to-book value ratio
Best of all, P/B provides a valuable reality check for investors seeking growth at a reasonable
price. Large discrepancies between P/B and ROE, a key growth indicator, can sometimes send
up a red flag on companies. Overvalued growth stocks frequently show a combination of low
ROE and high P/B ratios. If a company's ROE is growing, its P/B ratio should be doing the same.
AstraZeneca Pfizer
Johnson & Johnson
Return on equity (ROE)(Net Income/Total equity) 40.35% 12.11% 16.94%
Book value per share 17.17 10.50 20.57Market-to-book ratioMarket value per share/Book value per share 2.54 1.98 3.07
Table 6: market-to-book value ratios
If you see in the above table you see JNJ ROE, which is low 16.94% less than AZN and the JNJ
has higher P/B ratio. This shows that the JNJ is overvalued growth stock as compared to AZN.
So we conclude that AZN is undervalued stock.
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SWOT AnalysisSummary
AstraZeneca has risen to becoming one of the top pharmaceutical
companies of this generation after a successful merger on April 6, 1999 of
Astra AB of Sweden and Zeneca Group PLC of the UK. AstraZeneca is the
UK’s second largest pharmaceutical company spanning 6 areas of healthcare
including cardiovascular, gastrointestinal, infection, neuroscience, oncology
and respiratory, with over 30 medications on the market, and operations in
the Americas, Europe and Asia. (“AstraZeneca PLC SWOT Analysis,” 2012)
The financial performance for 2011 as described by the Chairman, Louis
Schweltzer, included an increase in operating profit of 10% at $12,795
million (2010: $11,494 million), strong sales growth for Crestor, Seroquel XR
and Symbicort, and a decline in revenue of 2% in the U.S. as well as an 11%
decrease in Western Europe due to government pricing interventions and
generic competition. (Schweltzer, 2012)
Strengths Weaknesses
Sales growth of Crestor, Seroquel XR and Symbicort.
Advancements in Biologics and Vaccines through acquisition of MedImmune
Cost control efforts increasing operational efficiency.
Expiring Patents
Regulatory requirements
R & D productivity
Pricing Pressure
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Maintains a strong global presence
Opportunities Threats
Advances in science and technology
Further expansion in emerging markets
Amgen collaboration for inflammation drugs
Acquisition of Ardea which is a U.S. biotechnology company
Generic Competition
Illegal trade in products
Patent litigation in respect of IP
rights
Economic, regulatory and political pressure
Strengths
Sales growth of Crestor, Seroquel XR and Symbicort.
In 2011 some of AstraZeneca’s top performing medications showed promise
with an increase in sales. Crestor, Seroquel XR and Symbicort had gains in
sales value of 13%, 27% and 11% respectively. (“Annual Report,” 2011)
These increases have been consistent since the 2009 fiscal year and show no
signs of a reversal. In the Dow Jones Sustainability World and European
indexes, which evaluates the sustainability performance of the largest 2500
companies on the Dow Jones Total Stock Market Index, AstraZeneca ranked
in the top 7%. (“Annual Report,” 2011)
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Advancements in Biologics and Vaccines
After purchasing MedImmune, a U.S. biotech firm, in April 2007, AstraZeneca
entered the market of vaccines for the first time. Former CEO David Brennan
stated,
“This acquisition represents a transformational step to deliver our
biologics strategy sooner than anticipated… It creates a leading fully
integrated biologics and vaccines business with critical mass and
enhances AstraZeneca's R&D science base through which we will
deliver a stronger product pipeline". (Gibson, 2007).
As of March 2012 the FDA approved the first four-strain influenza
vaccine, FluMist Quadrivalent. This vaccine covers two strains of type A and
B influenza providing a larger protection for consumers and increasing the
potential for a larger portion of the market due to its increase in strain
coverage and inclusion of eligible individuals from 2-49 years of age over
competitors. The vaccine garnered its first significant contract outside of the
U.S. as of July 2012 when it was announced that Britain would administer
FluMist to all children aged 2 – 17 for free. Treatments for cancers of the
blood and solid tumors are apart of AstraZeneca’s biologics pipeline.
(“AstraZeneca PLC SWOT Analysis,” 2012)
Cost control efforts increasing operational efficiency.
As of February 2012, AstraZeneca has implemented new restructuring
initiatives to improve operational efficiency, research and development
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capabilities and improve productivity. As outlined in a press release on
February 2, 2012 projected annual benefits are estimated at 1.6 billion by
2012 and will reduce the headcount by 7,300 positions. There are now 3
global market regions, reduced from 5, and the smaller countries have been
clustered to enhance utilization of resources and reduce the cost base while
increasing shared services. Digital technology, call centers for sales and
medical advice is being utilized to provide advanced and high quality
services at a lower unit cost for healthcare professionals. AstraZeneca’s
R&D has also undergone restructuring with most of it focused on the
neuroscience therapy area where internal expertise is combined with
external science and the creation of a virtual neuroscience Innovative
Medicines unit (iMed) that consists of a team of 40 to 50 AstraZeneca
scientists and will partner with external sources. Although there is
restructuring in R&D AstraZeneca continues to invest in the areas they have
succeeded in which include cardiovascular, gastrointestinal, infection,
oncology, neuroscience and respiratory & inflammation. The supply chain
has seen change in the outsourcing of the production of active
pharmaceutical ingredients as well as some other manufacturing to increase
efficiency.
Maintains strong global presence
AstraZeneca operates in over 100 countries, employing 57, 200 people
worldwide. It is the second largest pharmaceutical company in the U.K.
According to the AstraZeneca’s chairman Louis Schweltzer, “the world
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pharmaceutical market grew by 4.5% in 2011 and the fundamentals of the
industry remain strong.” With this increase in the world market he went on
to discuss the attributes of the pharmaceutical market which includes an
increase in population and age, passing the 7 billion mark in 2011, an
increase in patient numbers in new markets unaware of AstraZeneca’s
current and future products, an increase in chronic diseases in all classes of
the world and more advances in science and technology for emergence of
new medicines. (“Annual Report,” 2011) These variables contribute to a
growing market that AstraZeneca can take advantage of in the coming
years.
Weaknesses
Expiring patents
As of 2012, 8 patents have expired on AstraZeneca’s key marketed products,
totaling 3,487 million in U.S. revenue. (“Annual Report,” 2011) That loss
coupled with the future loss of other key product patents can be a
devastating blow to any pharmaceutical company. The strong sales of
Crestor, Seroquel XR and Symbicort also face expiration in 2016, 2017 and
2018 respectively, with sales totaling 5,675 million. Other patent challenges
include validity and/or effective scope of the patent. (“Annual Report,”
2011)
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Regulatory requirements
Regulation of the pharmaceutical industry remains high to ensure safety,
effectiveness and responsible promotion of medicines being sold.
Regulations on the industry continue to increase and are diverse throughout
each country. (“Annual Report,” 2011) As technology has expanded so has
the demand for access to data, specifically clinical data, as well as the
implementation of policies absent of guidelines defining personal, private
and proprietary information that would provide a safeguard of data from
public disclosure. (“Annual Report,” 2011) Pressure from health technology
assessors and payers also continue to mount pressure in relation to safety
and effectiveness. (“Annual Report,” 2011)
R & D productivity
Globally, investment in R&D in the pharmaceutical industry has reached over
$130 billion in 2011, which was an increase of 93%. Although there was a
dramatic increase in investing, new drug launches per year did not increase,
and in fact stayed the same in the U.S. averaging 25 per year. Regulations
also increase length of development times and increase development costs.
(“Annual Report,” 2011)
Pricing Pressure
Dynamic pricing and reimbursement environments in markets are affected
by the cost containment in healthcare that includes pharmaceutical spending
containment. (“Annual Report,” 2011) The pressure of pricing has increased
over the years such as in Europe Italy has mandatory discounts, in Germany
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there are freezes on permitted pharmaceutical prices, in China there are cuts
to maximum permitted retail drug prices and in Canada and the U.K. risk
sharing agreements are increasing. Germany is the largest pharmaceutical
market in Europe and recent reforms in healthcare has affected how patent
protected drugs are accessed and there is no longer a free market for pricing
and reimbursement. (“Annual Report,” 2011) Biennial cuts in Japan and
South Korea are expected to remain constant. (“Annual Report,” 2011)
Hospital tariffs also pose a threat to sales by providing incentives for
hospitals to select generic substitutes that have lower costs. (“Annual
Report,” 2011)
Opportunities
Advances in science and technology
New technology and its application to previous advances in disease
understanding will improve delivery and availability of new medicines for
many existing and unmet medical needs. Biologics is an important factor for
the success of new products and the advances in science and technology will
lead to new opportunities for using small molecules in new medicines.
(“Annual Report,” 2011) 45% of sales are forecasted to come from biologics
from the world’s top 100 pharmaceutical products, which is an increase of
12% from the previous year. (“Annual Report,” 2011) With 4 principal
biologics manufacturing facilities within the U.S., U.K, and Netherlands
AstraZeneca has scalable capabilities of process development,
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manufacturing and distribution of biologics including supplying MAbs and
influenza vaccines worldwide. According to MedImmune’s website, biologics
are developed from human or animal proteins which support the body’s
immune system in the treating, prevention or curing of an illness. Most
notable examples of them are vaccines and insulin and new developments in
debilitating diseases and other therapy areas has expanded over the last few
decades.
Further expansion in emerging markets
Estimated sales for 2015 in countries show an overall growth increase of
over 40% worldwide, with North America having 1.5% growth. (“Annual
Report,” 2011) As discussed previously the world pharmaceutical market
had an increase of 4.5% in 2011 and emerging markets average revenue
growth was 12%. Middle-income countries have seen an escalation in
chronic disease and are starting to emerge in low-income countries as well.
Population ageing and poor health habits also increase the likelihood of
chronic diseases. (“Annual Report,” 2011) Industry estimates predict rises
in healthcare spending in emerging markets of China, Russia, Brazil, and
India of 49% from 5.3 trillion in 2010 to 7.9 trillion in 2020 and by 2030
emerging markets will account for 60% of global GDP. (“AstraZeneca PLC
SWOT Analysis,” 2012)
Amgen collaboration for inflammation drugs
As reported in the Wall Street Journal by Ben Fox Rubin (2012), AstraZeneca
has inked a deal in April of this year to “jointly develop and commercialize
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five inflammatory disease treatments in Amgen’s portfolio” (para. 1). This
collaboration as described on AstraZeneca’s website is “a new phase in
biopharmaceutical business development…”, which is sure to lead to new
medicines ranging across a number of disease areas and helpful to
AstraZeneca due to shared costs for development and commercialization
responsibilities.
Acquisition of Ardea, which is a U.S. biotechnology company
Andrew Jack and Jennifer Thompson of the Financial Times (2012) reported
on the acquisition of Ardea for 1.3 billion that specializes “in developing
Lesinurad a compound that acts as a selective inhibitor to help regulate high
levels of uric acid in the bloodstream” (para. 4), which is Ardea’s most
advanced clinical-stage product. This particular medicines targets gout and
is estimated that 14.7 million cases in 2009 and forecasted to rise to 16.6
million in 2019, over a 10% increase.
Threats
Generic Competition
Generic competition remains one of the largest threats to any organization in
the pharmaceutical industry. The approval and launch of medicines can
span anywhere from 13 to over 20 years and cost companies in the millions
before it even hits the market. Generic medicines offer lower costs, which
are extremely attractive to consumers and health professionals and payers.
The U.S. market’s majority contender is generics, holding 80% of the market.
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Generic medicine is also predicted “to be the single largest driver of value
growth up to 2015”, as stated in AstraZeneca’s 2011 annual report. When
patents expire generic availability rises and generic manufacturers
investments are lower in R&D and market development.
Illegal trade in products
Counterfeiting of medicines costs go far beyond economic alone. Public
health and loss in confidence for the brand due to a lack of certainty of
integrity of the supply chain outweigh any economic losses. The reputation
of the company is at stake when others unlawfully deceive consumers with
fraudulent products that may have adverse affects. In certain instances a
recall may be implemented because of a fraudulent product exhausting
valuable resources and creating unnecessary expenses.
Patent litigation in respect of IP rights
The challenges of patents or assertion of litigation against infringers can
result in expensive legal costs and unsuccessful judgments, injunctions, or
even liabilities for damages or royalties. Protecting patents include time and
capital that waste well needed resources for an organization.
Economic, regulatory and political pressure
Pressures to reduce production costs are continuing to be a burden as
regulations and political pressures rise. After the Affordable Care Act was
passed increasing rebates and discounts for Medicare and Medicaid patients.
Other health system delivery reforms will also take affect over the course of
38
the implementation of the law during 2010-2014. The number of patients
will expand as more Americans become eligible for insurance coverage. By
2014 businesses will be able to send employee coverage into the health
insurance exchanges and have an adverse affect on the pharmaceutical
industry explained in the annual report as exchanges not offering “a
prescription drug benefit that is as robust as benefits historically provided by
large employers.”
SWOT Conclusion
Use it to inform how they got here and what to do going forward
Recommendations
Conclusion
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Appendix
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